How Putin’s Fealty to the Washington Consensus Made His Currency Crisis Worse

Who needs sanctions when intellectual capture produces such swimming results? The US-led restructuring of the Russian economy after the USSR fell is a gift that keeps on giving.

Hoisted from comments:

Ben Johannson

My understanding is tha Russia allows conversion of domestic deposits into USD. That needs to stop immediately. Until it does these rate hikes are going to be seen as acts of desperation, increasing stampede out of the rouble.

Put banks into receivership, push losses off on foreigners and when the dust clears return them to normal operations with a new restriction: if they can’t get USD on the fx markets, don’t come to the central bank asking for them.

Anyone have an in with the Kremlin? I sent an email to the President’s office but my opinion isn’t worth a damn. I really don’t want to see Russians go through a repeat of 1998.

  1. Jim Haygood

    ‘My understanding is that Russia allows conversion of domestic deposits into USD. That needs to stop immediately.’

    From the central bank’s point of view, yes. Rate hikes rarely work to defend a collapsing currency, when the underlying cause is likely capital flight.

    For ordinary citizens (not the oligarchs, who already have houses and bank accounts in London), capital controls are harsh medicine. Foreign study or travel becomes difficult or impossible. Supplies of newest-model computers, phones, and even spare parts for old equipment dry up.

    Some US economists take a remarkably nonchalant attitude toward capital controls, never actually having had to live under them.

    1. Ben Johannson

      No one is talking about capital controls, this is an issue of currency sovereignty. Russians need to be stopped from converting the roubles in their accounts to USD and the country as a whole should be de-dollarized. There is no good reason for Russia to allow financial control of domestic policy by foreign investors and governments.

      It would help for someone to tell Putin this; so far his government has acted stupidly in its response.

      1. bob

        “There is no good reason for Russia to allow financial control of domestic policy by foreign investors”

        Foreign investors? A russian oligarchs best friend is his dollars, or pounds. Do you really think they’re gonna let a guy like putin be in charge of their capitol?

        They know exactly what kind of guy he is, one in the same.

        If he stopped “allowing” the conversion, which isn’t really accurate anyway, he’d piss all his buddies off.

        1. Ben Johannson

          Orlov is correct: the Russian central bank is an enormous part of the problem in refusing to move toward greater financial independence for the country and Putin himself appears captivated by Washington Consensus thinking. Unless this changes it’s 1998 all over again.

          1) stop convertibility

          2) raise taxes to reduce quantity of roubles and engineer a revaluation.

          3) denominate oil transactions in roubles.

Yves again. Via e-mail, Mark Ames points out that it would have been extremely destabilizing politically to ban convertibility, but that isn’t something you do overnight. It’s something that in an ideal world should have been curtailed over years.

And to give more context, here are the critical sections of the ClubOrlov post that Carolinian mentioned above:

….at the moment Putin is pushing on a string. You see, once you staff the central bank with economic liberals trained to follow the dictates of the IMF, and do nothing to shut the revolving door between the central bank and other big banks (after all, if the Wall Street boys can do it, why can’t the Russians?) then why wouldn’t they rob their own people every chance they get, then attempt to use their ill-gotten gains to subvert the political system—just like the Americans have done?

Some people are starting to loudly criticize Putin for his inaction; but what can he do? Ideologically, he is a statist, and has done a good job of shoring up Russian sovereignty, clawing back control of natural resources from foreign interests and curtailing foreign manipulation of Russian politics. But he is also an economic liberal who believes in market mechanisms and the free flow of capital. He can’t go after the bankers on the basis of ideology alone, because what ideological differences are there? And so, once again, he is being patient, letting the bankers burn the old “wooden” ruble all the way to the ground, and their own career prospects in the process. And then he will step in and solve the ensuing political problem, as a political problem rather than as a financial one.

This strategy carries a very substantial opportunity cost. After all, if the central bank acted on behalf of regular Russians and their employers, it could take some very impressive and effective steps. For instance, it could buy out western-held Russian debt and declare force majeur on its repayment until financial sanctions against Russia are lifted. It could drop its interest rate for specifically targeted domestic industries—those involved in import replacement. And, most obviously, it could very effectively curtail the activities of well-connected financial insiders aimed at destroying the value of the ruble. Putin said he knows who they are. I hope that they are wearing adult diapers. I wouldn’t be at all surprised if they get Khodorkovskied before too long.

So the currency crisis besetting Russia has a bigger internal component than most observers realize. Orlov points out, as we have, that Russia is a comparatively low cost producer, and the slide in the ruble makes it more so, so in theory it should be able to ride out this downdraft. Or as Ames put it, “Russia’s been broken a few times already. It’s not going anywhere.”

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  1. jgordon

    I am saddened Dmitry Orlov refuses to talk about collapse anymore. But his analysis of Russia and the Ukraine lately have been fairly interesting. Hopefully he’ll have more to say on international relations before he meets his minimal viable sociopathy target and switches topics again.

    1. HayBackAtcha

      Stare too long into the abyss, and the abyss will stare into you.

      I think Dmitri Orlov vowed to stop writing about collapse sometime after the “6th stage of collapse” post, which was about eventual human extinction. Dark, fatalist, Russian humor can only get you so far.

  2. Bugs Bunny

    The US-led restructuring of the Russian economy after the USSR fell is a gift that keeps on giving.

    What’s up Doc? USA led the restructuring of Russia after its 1998 crash in order to ensure Russia would not fall into complete madness and to keep nukes out of terrorist hands. (Ben Johannson
    December 16, 2014 at 5:48 pm ” 3) denominate oil transactions in roubles”) Oil is sold in dollars because USA was first country to put oil to use commercially in a big way, that is not to say other countries did not know about it, but it didn’t become commercially viable until the internal combustion engine was created and put into extensive use. Since that occurred in USA first, I will use Henry Ford as my example for anyone who wants to say this or that guy did it first argument. And an argument is fine as long as it doesn’t get off topic.

    In order for other countries to sell oil to USA, with USA as largest consumer of it for so many years, that is why it was originally priced in dollars.

    Currently Russia and some other oil dependent producer states are having problems balancing their budgets because oil is cheaper than it has been for 15 years or so. But when their currencies were worth more did anyone hear any commotion of denominating oil in any other currency? No. Would the rest of the world buy oil if it where denominated in Roubles? Probably not. Why? Manipulation of that currency is rather easy and currency markets are proving currently. It is also a worthless currency. World markets want a strong currency to value oil, not a weak one.

    1. Yves Smith Post author

      Oil is not “sold in dollars”. Its price is denominated in dollars.

      The issue here is not the oil price. With the ruble falling, Russia comes out the same or maybe even ahead in terms of the price of oil in local currency terms. It’s 1. that it imports some products like pharmaceuticals, for which it has no ready substitute. Those have gotten a ton more expensive, 2. Many Russian companies, particularly banks, did some borrowing in dollars. They are going to have trouble servicing that debt if they mismatched borrowing (as in they took currency risk and the borrowing isn’t in proportion to operations they have outside Russia that generate income to service the debt in dollars) and 3. Russia’s efforts to defend the currency by raising interest rates will make its downturn much more severe than it would have been ex the interest rate increase.

  3. not_me

    The question I have is why was/is the ruble soft? Yes, I can see it would be soft now because of privileges extended to the dollar; those should cease as Ben says. But why was it soft in the past? When Russia has so many natural resources, excellent military equipment to sell, a highly educated population, etc? Was it because Russia (or the Soviet Union) accepted so-called hard currencies (eg. the US dollar, the British pound) or gold instead of insisting on rubles for all purchases? So the nomenclature could have “hard” money to buy Western luxury goods?

    Or was the problem that government officials make poor credit decisions?

    Serious question, why should a country as rich as Russia have a soft currency?

    1. Ben Johannson

      Russia has a big problem with tax collection which is basically a failure to control supply of the currency. Also, because Russians can convert, the central bank is forced to change interest rates just to make buying government bonds more attractive than converting to dollars. Those two options competing with each other don’t make for stability, so the currency can’t maintain value. This is very similar to the 1998 scenario when the central bank raised the rate to 100%, found it didn’t work and suspended convertibility.

      So look at the differences in how the US and Russia run their monetary policies:

      Rouble is convertible into dollars.
      Dollar is non-convertible.

      Rouble is pegged or managed relative to dollar
      Dollar is free-floating with value determined by fx markets

      U.S. has relatively effective taxation which keeps dollar supply in check
      Russia has weak, spotty taxation so supply can cause value to plummet.

      *If anyone is wondering, a soft currency is expected to fluctuate erratically in value while a hard currency gains or loses value in a gradual or controlled fashion.

  4. Jim Haygood

    Stopping the conversion of ruble deposits into USD would be the very essence of capital controls. The exchange requires selling rubles (to whom?) and buying dollars, which weakens the ruble even more.

    A Bloomberg article today details both sharply rising prices of imported goods, and hoarding for fear that their prices will go even higher:

    Exchange controls are pretty similar everywhere. Access to foreign currency, beyond de minimis amounts, is by official permission only. The ability to use domestic credit cards overseas typically is subject to daily limits and unfavorable exchange rates. And of course, a black market develops.

    Russia’s views on exchange controls were expressed in January:

    HONG KONG — A call for the scrapping of exchange controls came from an unusual source on Monday, with Russian Deputy Finance Minister Alexey Moiseev pointing out at a major Asian investment conference that his country [Russia] was the only member of the Brics (Brazil, Russia, India, China, South Africa) grouping that did not have capital controls.

    Asked during an interview on Monday whether the Brics countries should lift capital controls, Mr Moiseev said: “Yes, our experience has been unequivocally in favour of lifting capital controls.

    “Let me phrase it this way: you either have to have full controls, and then it works, or you have no controls,” he said. “You cannot have some controls, because if you have some controls, you create arbitrage opportunities for market participants, which are exposing.”

    Often the result was a “boom and bust” scenario, he said.

    1. Ben Johannson

      Capital controls are for regulating how currencies can flow in and out of your economy. If a government sets the rule that any foreigner investing in domestically issued bonds cannot sell for one year, that’s a capital control for smoothing out volatility. It means that restrictions on foreigners are different than restrictions on residents.

      What’s happening in Russia is a different phenomenon: Russians with roubles in their bank accounts are going to their domestic banks and converting those roubles into dollars. Those dollars aren’t coming from outside investors, they are coming from the Russian central bank’s reserves which have accumulated from foreign trade. This is a very big no-no which exposes the Russian financial system to significant liabilities in USD, a currency over which Russia has no control.

      Ames is certainly right that Russia has been broken before, but how many more times do they have to get kicked in the collective nuts before abandoning what Neil Wilson calls sound finance stupidity?

      1. Jim Haygood

        Both of these are examples of capital controls. Inbound capital tends to get restricted when ‘hot money’ flows from foreigners are considered to be excessive. Outbound capital from domestic investors usually gets restricted when foreign exchange is in short supply.

        ‘Capital controls are residency-based measures [which] regulate flows from capital markets into and out of the country’s capital account.’

        China is notorious for having bidirectional capital controls. Foreigners can’t freely invest in China without official approval, nor can resident Chinese take their money out without permission.

        Russia’s relative openness to capital flows complicates its efforts to establish non-dollar trade settlement with China. Chinese who can convince cooperating Russian suppliers to over-invoice can then exchange their excess rubles for dollars or euros, thus evading China’s domestic controls.

        1. Ben Johannson

          Capital Account Convertibility is directed at foreign owned financial assets. Domestic convertibility is separatee from this in that private investors go to the FX markets, while Russians converting rouble deposits into dollars go to the central bank.

          The capital account is foreign investment + portfolio investment + other investment + reserve account. Capital controls in every theory I’ve ever encountered target the first three. Domestic deposit convertibility policies do not affect domestic ownership of financial assets vs. foreign ownership.

          1. Jim Haygood

            ‘Domestic convertibility is separate from this in that private investors go to the FX markets, while Russians converting rouble deposits into dollars go to the central bank.’

            It’s just not so. Take Venezuela as an example:

            ‘Venezuela plans to kick off as soon as tomorrow the new SICAD 2 auction, which will enable companies and individuals to buy and sell dollars under the supervision of the Central Bank of Venezuela.’



            The distinction you’re drawing between FX markets and the central bank is nonexistent. All cross-border FX trading, whether private or official, flows through the capital account.

            1. Ben Johannson

              As I wrote there are four components to the capital account, not one. There’s a very big difference in approaching markets for swaps and going to the central bank.

              1. Ben Johannson

                To put it simply, a government telling banks “we aren’t going to guarantee your currency conversions, if you want foreign capital you’ll have to get it on your own through the market” is not a capital control. Individuals and firms are still perfectly free to obtain foreign currencies, they just won’t have big daddy government there to pile liabilities onto. Suggesting otherwise distorts the very meaning of the term.

              2. Jim Haygood

                FX swaps still involve a spot forex transaction (which goes through the capital account), along with a forward transaction.

                To put it straightforwardly, when the authorities want to block hard currency from leaving the country, they close ALL the exits.

                All that’s left, to sidestep official channels, is hawala. And that ain’t kosher no more. Or (DIY approach) you can brave the AFIP dogs:


                1. Ben Johannson

                  Jim, I don’t know who you’re arguing with but it isn’t me and you aren’t talking about Russia. No exits have been blocked and capital is free to enter or leave the country. What you demand is that governments backstop capital movement rather than leaving it to markets, which is ironic given all the free-maketeer stuff you push here. No economist or financial specialist worth their salt is going to agree with you that government non-interference is a capital control. This is silly.

  5. c1ue

    I’ve noted before, elsewhere: If Russia had unilaterally decided to devalue the ruble to 75 – the US and EU would be screaming.
    Since the US and EU are the ones largely responsible for the present devaluation (particularly the banksters), this is instead being posited as a failure and calling Russia a “currency manipulator”.
    Devaluation is a huge problem if a nation has a negative currency account or has large foreign currency debts with little backing, but neither of these statements is true for Russia.
    The real question is: how long are EU businesses willing or able to tolerate the massive dislocation – between sanctions and the ruble devaluation – is having on their operations?
    Put another way: even if sanctions were to disappear magically this instant – the impact of the devaluation would be to depress EU exports to Russia nearly as badly.

  6. susan the other

    So per Orlov, is Russia really orchestrating this so that as the always-rigged price of oil now falls the ruble will fall even faster and win the currency war and the price war? Then Russia (solving a financial crisis by political mean) can begin to seriously invest in the domestic economy. As soon as they can bring down the interest rates, that is. Sovereign banking. What a difference there is between sovereign public banking and a central bank system that merely pontificates about being “independent.” Witness Stanley Fischer’s latest platitude about how shocked he was to witness Jamie Dimon taking over legislation to deregulate derivatives: We (the Fed system) are only 2 bad decisions away from no longer being independent. What an irresponsible and deceptive comment, Mr. Fischer.

    1. jgordon

      I think you are slightly off there. If I know Orlov, what he means by “solving the political crisis” is that Putin is about to string up a bunch of bankers, oligarchs, American stooges, and other misc political opponents. Just imagine how popular Obama would quickly become if he put all of the bankers on trial and then executed them. I imagine Putin’s popularity will go through the roof when he does that in Russia.

  7. Andrew Watts

    It’s only been quite recently that Russia has turned away from the West and shifted it’s focus to the East. After 9/11 there was even talk that Russia would join NATO as a full member. Which could’ve been followed by membership in the European Union. Why would Putin turn his back on the Washington Consensus over the years?

    If Russia goes into full blown economic crisis it could always ask China for an advance in USD on the natural gas it’s going to sell to it anyhow after the new 400 billion dollar natural gas pipeline is completed. Of course China would get a hefty discount and with the South Stream pipeline cancelled you know who’s going to ultimately pay for all this?

    The European Union. In the meantime OPEC is going squeeze American shale production and once again the United States was outsmarted and outmaneuvered. (“It’s a trap!”)

    1. Veri1138

      The problem with a Russian-US Alliance is that no one country or any alliance of countries could withstand THAT force. Off the record talks with some Russian diplomats, while at parties, mentions that. A US-Russian Alliance would not be a good thing.

  8. kevinearick

    The majority equates no change with security, and by no change I mean increasing short-term profit on extortion, of the minority by the majority. The US Constitution is built to vent the symptoms, not to address the cause. Technology, always a derivative of nature, does not create wealth; it transfers wealth for human consumption, which has its uses. Nature is the 99%, and we have barely scratched the surface of nested EMF, in a cave, on a pebble, travelling in a vast ocean of space.

    Putin is having a Chicken Pox Party, sitting on vast reserves. Anyone can hide in a military dictatorship and complain about the police state, run by bankers, and most do, throwing stones at the windows of others doing the same. The American adaptation simply provided for revolving scapegoats. Nature provided the increased number of social event horizons simulating economic mobility. Jumping event horizons is quite useful, but expect the herd to be the herd. Get that piece of paper if it’s useful, but don’t depend upon it for an exit.

    If you look back, you will see that all the variability, in paper, gold, oil, copper, whatever, was nonsense, driven by hoarding, the insecurity of those avoiding change and looking backward for a solution to the threat, upon which the bankers feasted, with boom and bust artificial scarcity. Labor didn’t go to the oil patch, buy a million dollar house and try to raise kids there. What Putin and Obama do is of no concern, because there is always noise to be employed.

    There is a lot of make-work between the countryside where the wealth is and the city where the critters want to herd up. Basically, you are rolling a boulder uphill as a counterweight for an elevator, to hoist your children up, and it helps to have some momentum. If you want to walk a thousand miles to survey the countryside, that’s going to help you, but don’t trim pot for critters living in McMansions and driving BMWs, and expect not to be subjected to a police state. If pot were legal, you could throw a couple of seeds in the ground and be done with it.

    Farmers shepherd their soil, water and seed, out of self-preservation. What the critters are calling organic farming, which is dependent upon exploiting labor through international trade to inflate prices, is really hobby farming, squatting on farmland to employ real estate inflation. The critters feed on a glut of young people, including the churches, like vampires, because they are focused on what they don’t have instead of what they do have, and if you don’t see that, there isn’t much anyone with a surplus can do for you. Credit from the Fed is no substitute for goodwill, although that is precisely what you see on corporate sheets.

    What the Edisons ignore, through peer pressure normalization, the need to belong, you want to see, as a matter of course. Pot is simply feeding the Big Pharma cash cow, and the last thing America needs is another European city cookie-cutter prototype. There is nothing quite so stupid as a corporate bully representing passive aggressives in a hip façade.

    If you compete with America on consumption, you will lose. If you compete with Russia on deprivation, you will lose. And the last place you want to be is in the middle, unless you have the most powerful solenoid. Europe is the past, not the future, communism shrouded in socialism and topped with capitalism or no. Communism fails every time, but that never stops the critters from herding up into peer groups, calling it democracy in the current iteration. Scaling replication redundancy is not democracy. Democracy requires work; it’s not an as-needed, just-in-time, after-it’s-far-too-late process.

    1. Greenbacker

      Bunch of drivel. The past is the future. Not the near past but the past from 2000+ years ago, when history began to detour.

    2. hunkerdown

      Yep, kevin’s post today is unusually high drivel. kevin, go read your Graeber — communism is the bloody FOUNDATION of human society, topped with capitalism or no. Without communism, we have only liberalism, fascism and Ayn Rand.

      1. kevinearick

        Brilliant, making my case as usual.

        You just missed the market, again, didn’t you, despite being told that a fastball was coming right down the center of the plate? And then you waste your time responding to me, with emotion, on the wrong side of the bubble.

        Good luck with that approach.

        “If Mr. Bell had known anything at all about electricity, he would never have been able to invent the telephone!”

        Watch out for that sulfuric acid; crack me up.

        Note – Labor went to the oil patch to teach a few kids how to weld. Never weld for toilet paper. If you want a particular asset, you can weld your way there, with few transactions, pretty much in any spacetime. And welding technology has many applications, of which the empire programmer can repeat, but not begin to fathom.

        1. Fiver

          Which bubble, the one started in March 2009, the unconventional oil bubble, or the first big “up” day for markets just, count ’em, one-and-a-two days into unlimited public liability for $300 trillion in derivatives?

          You disappoint. I didn’t know until now how little regard you have for mere mortals.

  9. Greenbacker

    You people are ignoring the cultural points. For years during the last 100’s of years of Czarist rule, there was a major debate in Russia: Are we Euro or we Asian? This is what set in part the Russian Revolution. The Bolshevik party came about in part it didn’t have jewish intellectuals(like its Menshevik challengers) and it believed Russia and the Slavic peoples were “Asiatic” culturally. Now, anti-semites stupidly get caught up into the Bolshevism and the “jews” yet ignore the “jews” were brought in by Capital themselves to produce a production deal post-revolution so they could profit(they pulled Trotsky to service in 1917 when he was in the bronx painting ha). The Bolshevik party was and in the end when Stalin’s(who joined the bolsheviks for its lack of jews in 1905) slow but steady rise to power, a Asiatic movement. Not “international jewry”, not humanism, not materialism. Communism was the word we could understand in today’s materialistic, humanistic world. Yet, that was not its ideal in a traditionally marxist sense. You could also say the same thing for China.

    It is the humanistic values that undermine “Asiatic” Communism to the Russians. The Czar ignored the anti-western buildings of the peoples, payed the price and Russia has been pushing at the western string ever since despite the west trying to bring it back into the fold in the 1990’s………..

    1. JurisV

      For a much more thorough and more informed essay on the history of Russia and its connection to Ukraine and the West read Dr William R Polk’s posting today on sic semper tyrranis:

      It’s fairly long, but it’s an exquisite piece of writing on the political, military and (above all) the human aspects of centuries of human development. It was of particular fascination for me because I was born in one of the Baltic states near the end of WW2 . That region was also one of the regions that was “buffeted” by the writhings of Russia and of the machinations of the West — along with the human misery over the preceding centuries.

      I much better understand the current problems with Russia and Ukraine after reading Dr Polk’s essay.

    2. JurisV

      Sorry Greenbacker — I meant to compliment your post in the beginning of my reply. And I meant to suggest that Polk’s essay was complementary.

    3. vegasmike

      I don’t know where Greenbacker get his ideas. During the Russian revolutions Jews were active in all the different left wing factions. At the time right-wing factions were anti-Jewish. In 1948, Stalin started an anti-Semitic purge. During the 20s and 30s, the Jews did about as badly as all other urban Russians, which was a little less worse than rural peasants. I don’t think something called “Capitol” back to Russia. Maybe you think “Capitol” is a polite euphuism for the “Rothschilds” . The German secret police did return Lenin to Russia. Maybe they though he would just disrupt things and not really start a revolution.

  10. Fiver

    We have to bear in mind that Putin’s goal from the start was better relations with everyone, particularly Europe, but with the critical understanding that Russia was not going to be simply dissolved in the extremely corrosive acid of US-centric corporate globalization nor would he sacrifice Russia’s ability to deter a US strike by allowing NATO to install blanket ABM coverage in Ukraine. Both of these were perfectly reasonable goals that were intolerable in Washington. My point is that he has consistently done the minimum in order not to alienate Europe or bankers entirely, even as the US and Saudis declared economic war – but the clearly organized run on the Ruble is likely to change that calculus.

    Putin has at every turn shown himself to be above all a survivor. He could, in my view, as easily fold on Eastern Ukraine and agree to return to the status quo ante re Crimea – so long as ‘No missiles’ is guaranteed – as he could head straight to persons with former-Soviet financial expertise should his current people balk, or possibly hit back in a completely unanticipated way. One possibility, it seems to me, would be to out-Saudi the Saudis, i.e., threaten to take Russian oil off the market and drive the price right through the US/Saudi brain pan. After all, there can be no question this already is economic war, and I have no doubt who wins in an ‘ability to absorb pain’ contest – and that’s not the US public with oil at $200 + a barrel with today’s median incomes and virtually zero faith in a shocked-to-the-core Government, Fed and Wall Street. Remember, Russia produces 4x as much as anyone else has spare capacity to tap.

    If Putin survives this currency crunch, and I believe he will, the longer this then goes, the more it turns other producers into very vocal supporters of an end to this current stupidity. Putin has put out reasonable conditions for negotiation a dozen times, and the world knows it. If Putin and Iran stay firm, but reasonable, I think this US/Saudi gambit will falter then fail, leaving Obama the choice he always had – just settle these things like adults and tell his own neocons and media to suck it up and sell it as a win – and why shouldn’t peace be a win, after all?.

    1. Ky Luong

      The USA and NATO did everything in their power not to humiliate the Russian after the fall of the Soviet Union. We treated them as equal partners. USA even prevented ex bloc countries from joint NATO. When the Russian asked us not to put missile shield in Poland we agree. Everything we did prior to Ukraine was to make the Russian feel equal.

      Apparently that didn’t work. The Russian only acknowledge strength and that’s is what the USA is doing now. Don’t blame the USA or the West. We gone beyond what was expected from us.

      1. Yves Smith Post author

        No, you have the story wrong. As a condition of the peaceful dissolution of the Warsaw Pact, the US said it would not move NATO into former Warsaw Pact states. We repudiated that promise in 1997. Foreign policy demigod and no slouch as a cold warrior George Kennan said that would prove to be the biggest foreign policy mistake the US ever made.

        And it was the US that destabilized Ukraine and fomented a coup in a democracy when elections were mere months away. The new government had neo-Nazis in key positions, including the Ministry of Defense. The new minister announced what amounted to a program of ethnic cleansing in the southeast, that ethnic Russians would be forcibly resettled and that members of the military that worked on that operation could confiscate their property.

        The US picked this fight on Putin’s doorstep. It is hardly surprising that he reacted.

        1. Vatch

          I disagree with several of your points. The U.S. did not make a formal commitment to keep the Eastern European countries out of NATO. I think it’s fair to say that U.S. diplomats promised not to expand NATO while the former Warsaw Pact countries were in the process of separating from the Soviet Union, or while the Soviet Union itself was breaking up. But any permanent agreement would have had to have been in writing.

          George F. Kennan opposed the formation of NATO from the beginning. See pages 410 – 412 of his Memoirs 1925-1950. He was especially opposed to the admission of Turkey, Greece, and Italy to NATO. Whether he was correct about this is a separate issue. But given his opinion about the original NATO countries, it’s not surprising that he opposed the addition of more countries to NATO.

          We’ve previously discussed the U.S. role in the revolution, coup, change of government, whatever you want to call it. I don’t believe that the U.S. could have organized the massive demonstrations against Yanukovych that started in November, 2013. Typically, when the U.S. organizes a coup, it’s the country’s military that overthrows the government, not a popular uprising.

          Yanukovych himself is the person who destabilized Ukraine, and he reaped what he sowed. You are correct that there were some very creepy people in the new government, and the U.S. undoubtedly played a major role there, and we should be ashamed that the U.S. government did not insist on the exclusion of the ultra-nationalists from the new government. But the U.S. didn’t overthrow Yanukovych.

          As for the violence in the east, like many events, that has multiple causes. I think that Putin’s seizure of Crimea was the most important. Once that happened, the easterners must have been encouraged by the transfer of Crimea to Russia, whether Putin explicitly offered them support or not. At the same time, the people in the Ukrainian government hardened their position, because they didn’t want the humiliation of losing even more territory, so they were far less likely to to be flexible in their dealings with rebels in the east.

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